[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Wahiduddin believes Bangladesh to get political govt next year

The planning and education adviser Wahiduddin Mahmud on Saturday expressed hope that Bangladesh would see an elected government next year.

www.newagebd.net

Bangladesh to see political shift next year amid challenges: Wahiduddin Mahmud
United News of Bangladesh . Dhaka 07 December, 2024, 12:27

Wahiduddin Mahmud | UNB photo

Bangladesh is set to witness a political shift next year, says planning and finance adviser Wahiduddin Mahmud.

Speaking at the opening session of the Annual Baltic Conference on Defence (ABCD) conference at a hotel in the capital on Saturday, organised by the Bangladesh Institute of Development Studies (BIDS), he hinted at significant political developments while underlining the nation’s critical economic challenges.

Mahmud, however, pointed out that income inequality remains one of the country’s most pressing concerns. 'To tackle this disparity, quality education is paramount, an area where Bangladesh still has a long way to go.' He said.

As Bangladesh transitions from its status as a Least Developed Country (LDC), Mahmud referred to the ongoing efforts to retain some benefits associated with the LDC status.

'We no longer have the option of remaining an LDC. Discussions to sustain certain privileges from developed nations are ongoing, with positive responses from many,' the adviser said.

In a separate session, Indermit S Gill, Chief Economist at the World Bank, provided insights into how Bangladesh could escape the middle-income trap.

Investment and job creation should be the focal points, he stated, urging the country to foster entrepreneurship and expand the use of technology.​

 

[Saif]

Prioritise enhancing business environment

Improve law and order, rebuild trust with international partners

www.thedailystar.net

Prioritise enhancing business environment
Improve law and order, rebuild trust with international partners

Bangladesh's economy is at a critical juncture due to widespread corruption, financial irregularities, and the politicisation of public institutions by the previous Awami League regime. Since the interim government took charge following the fall of the AL on August 5, it has been attempting to restore some stability in the financial and business sectors. However, the efforts being made are not sufficient compared to the damage inflicted on the business environment by ongoing political instability and law and order situation not being fully restored. According to Syed Ershad Ahmed, president of the American Chamber of Commerce in Bangladesh, it is imperative to improve the law and order situation in the country to recover Bangladesh's global image, which was significantly tarnished during the AL's rule. The government must also urgently address issues like political stability and corruption to rebuild the trust of international partners.

Although exports and remittances have increased over the past four months, the ongoing macroeconomic instability, high inflation, and political unrest continue to threaten economic growth and recovery. According to a recently presented government-commissioned white paper on the economy, $234 billion were siphoned out of Bangladesh between 2009 and 2023, during the AL's tenure. Economic growth has also been overstated since 1995, with the practice of inflating estimates more after the fiscal year 2012-13. Additionally, Bangladesh's net FDI was found to have been overstated by $5.7 billion between the fiscal years 2019-20 and 2022-23. These issues have significantly dampened our economic prospects, which now requires well-thought-out strategies and plans to recover.

During the reign of the AL, public institutions such as the Bangladesh Bank, the National Board of Revenue, the Election Commission, and the police were heavily politicised. This widespread politicisation has significantly affected the business climate. Moreover, as more businesspeople entered politics, they prioritised their business interests over political commitments, further politicising public institutions for personal gain. For example, according to Shushasoner Jonno Nagorik, two-thirds of the lawmakers elected in January's 12th parliamentary election were businesspeople.

Against this backdrop, the interim government must focus on bringing buyers and investors back to the country by addressing the ongoing political uncertainty and relatively fragile law and order situation. It must implement significant reforms in state institutions to rebuild trust with international partners. Furthermore, it should encourage the creation of new businesses to attract both foreign and local investors. Since business and commerce depends on political stability and the overall situation in relation to law and order, the challenges faced by businesspeople in these regards must be urgently addressed.​

 

[Saif]

Deferring LDC graduation not an option

Education and Planning Adviser Wahiduddin Mahmud said Bangladesh has no option to defer its graduation from the least developed country (LDC) club.

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Deferring LDC graduation not an option
Education and Planning Adviser Wahiduddin Mahmud says

Planning Adviser Wahiduddin Mahmud speaks at the inaugural session of a four-day “Annual BIDS Conference on Development 2024” in Dhaka yesterday. Photo: star

Education and Planning Adviser Wahiduddin Mahmud said Bangladesh has no option to defer its graduation from the least developed country (LDC) club.

"Even if we want to, we may not be able to remain in the group of LDCs. Many people don't know that," he said.

The eminent economist made the remarks yesterday in Dhaka at a four-day conference organised by the Bangladesh Institute of Development Studies (BIDS).

As per the United Nations schedule, Bangladesh is set to graduate from the LDC status in November 2026.

However, owing to the economic crisis that has been prevalent for nearly two years, the issue of deferring graduation has been coming to the spotlight in recent months, particularly by local businesses.

With the economy in a fragile state due to the fallouts of global inflationary pressure, the Covid-19 pandemic, the Russia-Ukraine war as well as political turmoil and energy shocks on the domestic front, a section of exporters has been putting pressure on the government to shelve any graduation plans.

Although there is a lot of money in the balance sheets of some big industrial companies, it does not exist in reality. Workers have to be paid. But where will the money come from?— Wahiduddin Mahmud Education and planning adviser.

According to a UN report, trade preferences accorded to Bangladesh as an LDC have played a crucial role in the development of its economy and achievements in trade and social sectors. The loss of these benefits following graduation is expected to dent a lot of businesses by costing the country its trade competitiveness, especially if it fails to secure bilateral agreements with major export destinations.

In November, Finance Adviser Salehuddin Ahmed told the media that they are yet to make a decision on the scheduled graduation.

The United Nations Committee for Development Policy (CDP) reviews the LDC category every three years, assessing the progress of countries across three criteria, namely income, human assets, and vulnerability.

Based on these reviews, the CDP recommends which countries should be classified as LDCs to the United Nations Economic and Social Council (ECOSOC). The final decision is made by the UN General Assembly.

To graduate, a country must meet the threshold for two of the three criteria in two consecutive reviews.

"We have already qualified twice," Prof Mahmud said, referring to the previous reviews in 2018 and 2021.

If any country files a petition to the CDP's hearing committee saying that they are unable to graduate or asking to stay in the group of LDCs, it is considered degrading, he added.

"The Maldives and some tiny island nations applied for it, but it was unsuccessful."

When a country qualifies, it graduates automatically, the adviser explained.

"We need to continue discussions on unilateral concessions with different nations. Japan, Canada and the European Union can be favourable options," he added.

He also underscored the need for export diversification and economic diplomacy to negotiate in the global market.

Earlier, members of a panel that recently prepared a white paper on the state of the economy also advised the government not to defer graduation.

"Based on the committee's assessment of data and information, Bangladesh meets the requirements for LDC graduation despite the challenging economic situation," Debapriya Bhattacharya, who led the panel, said last week.

"So, we don't see any reason to hold back the graduation process."

In its report, the white paper committee said recent concerns about inflated economic indicators under the previous Awami League government would have little relevance in the case of LDC graduation.

The UN bodies will only revisit their calculations when a revised data set, including gross national income estimates, is available from government sources.

"Notwithstanding the reservations expressed by certain exporters' groups, there is hardly any plausible reason, as of now, for Bangladesh to request a deferment of the exit date from the LDC group," it said.

"Under these circumstances, Bangladesh will be well advised to pursue a substantive and effective LDC graduation strategy. This will require putting forward a transition plan to counteract the negative fallouts of Bangladesh's graduation out of the LDC group and enable the required structural transformation of the economy."

The white paper added that postposing graduation will invite political backlash.

According to a triennial review by the CDP in February this year, the current situation remains comfortable despite recent economic and political challenges.

Even the dampened economic performance during the current fiscal year is not expected to bring the country below the stipulated thresholds, it said.

Illusory wealth in big industry balance sheets

Speaking of how Bangladesh can build an egalitarian society after a mass uprising toppled the Sheikh Hasina regime on August 5, Mahmud said that the interim government is facing a huge shortage of resources.

This has made it difficult to increase investment in education, health and human resource development.

"A lot of money has been smuggled out of the country. People's money is in the banks, but the money has gone out," he said.

Although there is a lot of money in the balance sheets of some big industrial companies, it does not exist in reality, he said, mentioning the example of Beximco.

"Workers have to be paid. But where will the money come from?" he asked.

It is difficult to build an egalitarian society when contending with such realities.

"Now it has become a moral issue whether to buy dialysis machines or invest in public health," he said, adding that even seasoned economists and philosophers like Amartya Sen and John Rawls may not be able to come up with a solution for such a moral dilemma.

Indermit S Gill, the chief economist of the World Bank Group, said during a presentation at the event that middle-income countries, which are home to 6 billion people, were caught in a race against time.

"The external environment is making things harder, not easier. To escape the middle-income trap, countries need to undergo two transitions, not one. The transitions are between investment, infusion and innovation.

"To grow quickly, they have to discipline incumbents, reward merit, and capitalise on crises," Indermit said.

Binayak Sen, director general of the BIDS, delivered the opening remarks.

A total of 30 papers, two keynote addresses and 12 public lectures from Bangladesh and abroad will be presented and delivered at the conference, said Sen.​

 

[Saif]

Revised budget may be Tk 50,000cr smaller

Bangladesh’s national budget for fiscal year 2024-25 is likely to be reduced by more than Tk 50,000 crore, with the entire cut expected to be made in funds meant for the annual development programme (ADP).

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Revised budget may be Tk 50,000cr smaller

Bangladesh's national budget for fiscal year 2024-25 is likely to be reduced by more than Tk 50,000 crore, with the entire cut expected to be made in funds meant for the annual development programme (ADP).

However, this budgetary revision will depend on several factors, including conditions that the International Monetary Fund (IMF) may set for a fresh loan, the availability of budgetary support and the government's ability to generate revenue through tax collections.

A Fiscal Coordination Council held a meeting chaired by the finance adviser on Monday and discussed the reduction, according to officials from the Ministry of Finance.

In June, the government had passed a national budget of Tk 797,000 crore for fiscal year 2024-25, which included an allocation of Tk 265,000 crore for the ADP.

After the expected revision, the overall size of the budget may be reduced to Tk 747,000 crore, with the ADP allocation likely falling to Tk 216,000 crore, a senior official of the ministry said.

These figures are only preliminary estimates, and the final size of the revised budget will be determined during a meeting set for March or April next year, he said.

A significant portion of the cuts is expected to come from the ADP as the implementation of development projects has slowed due to political instability and the change in government.

Besides, the interim government has also decided to adopt a more cautious approach to spending.

In the first four months of fiscal year 2024-25, ADP implementation fell by 31 percent year-on-year.

Officials of the Implementation Monitoring and Evaluation Division (IMED) point out that many ADP projects were currently on hold due to contractors fleeing following the ousting of the previous government, and few had returned.

Additionally, the government is reevaluating projects that may not be deemed essential or were initiated based on political decisions, further contributing to the delays in project implementation.

As a result, the government has decided to reduce the ADP allocation by a big margin.

However, changes could come about in the revenue as the allocation for interest payments and subsidies is expected to rise.

But this has not been decided yet because a big portion of the revenue budget is spent on interest payments, a financial ministry official said, adding that increasing interest payments were exceeding previous projections.

In the budget for the current fiscal year, Tk 113,500 crore was allocated for interest payments and Tk 42,388 crore had already been spent in the first quarter.

This is a 92 percent increase compared to the same period last year.

That is why the allocation for interest payments may increase further in the revised budget.

Besides, subsidy spending has also been rising in recent years, with the government initially allocating Tk 88,015 crore for it.

By the end of the first three months of the current fiscal year, Tk 4,514 crore had been spent on subsidies, which is nearly half of what was spent during the same period last year.

The finance ministry official said the payments for subsidies have not been cleared due to the political unrest. Besides, there are arears on bills of the fertiliser, energy and power sectors, he said.

Meanwhile, the IMF may impose a condition for the government to settle a substantial portion of these arrears to be eligible for a fresh loan, the finance ministry official said.

This could increase the allocation for subsidies in the revised budget.

As of June, arrears for bills of the power, energy, and fertiliser sectors had accumulated to about Tk 60,000 crore, and these arrears continue to grow.

The interim government, after taking charge, sought budgetary support from multilateral and development partners. The government is expecting to get commitments for $6 billion in loan support by next June.

However, a confirmation on the amount of money will be available by next March or April. And the size of the revenue budget is depending on it.

Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), suggested that the government's decision to revise the budget could be linked to efforts to control inflation by reducing expenditure.

He noted that government revenues were under pressure, and there were challenges involving the development projects initiated by the previous government.

To stabilise the economy, Raihan recommended that the government prioritise key projects while addressing irregularities and mismanagement from past administrations.

However, he emphasised that there is no room to reduce the operating budget as interest payments on loans continue to rise.

Raihan, also a professor of economics at the University of Dhaka, said the fiscal year would unfold with these constraints in place, but stressed the importance of developing a mid-term plan for the future.

The potential loan from the development partners would provide some relief to the government, but it is crucial to align this funding with the country's development priorities, he said.​

 

[Saif]

Investment promotion ecosystem struggles

The fragmented structure of investment promotion ecosystem in Bangladesh and poor coordination among investment promotion agencies, regulatory bodies and service providers, outdated laws, weak...

www.newagebd.net

Investment promotion ecosystem struggles
Taufiq Hossain Mobin 07 December, 2024, 23:06

The fragmented structure of investment promotion ecosystem in Bangladesh and poor coordination among investment promotion agencies, regulatory bodies and service providers, outdated laws, weak enforcement of intellectual property rights and a number of other issues were major barriers to attracting investments in Bangladesh.

The observation was made in the white paper on the state of Bangladesh economy submitted to chief adviser Muhammad Yunus on December 1.

Although the Bangladesh Investment Development Authority was established as the central agency to support investments, its effectiveness was hampered due to insufficient collaboration with other IPAs, regulatory institutions and service providers, the paper said.

BIDA’s regional offices also faced infrastructural challenges that hindered the full implementation of its one stop service platform, aimed at streamlining investment procedures.

Policy inconsistencies and procedural delays further deterred foreign investments. For instance, the paper said, discrepancies between BIDA’s work permit guidelines and the residency definition under the Income Tax Act 2023 created confusion among investors.

Additionally, the work permit approval process could take up to 12 months, frustrating investors. The report recommended integrating visa and work permit procedures, similar to practices in India and Thailand, to improve efficiency.

The paper noted that automation efforts in Bangladesh were also incomplete. Initiatives like the VAT online and income tax automation projects still require dual submissions for approvals and registrations, undermining their effectiveness.

‘Furthermore, the monitoring and evaluation system remains weak, as BIDA depends on estimated data from its investor relationship management system, which is not systematically utilised,’ it said.

The legislative framework also complicated the investment landscape. Outdated laws such as the Foreign Private Investment Promotion and Protection Act 1989 and the Transfer of Property Act 1882 posed challenges, while the Bangladesh Flag Vessels (Protection) Act 2019 created logistical bottlenecks by mandating 50 per cent of goods be transported via Bangladeshi vessels, despite the limited capacity of national shipping lines.

In the pharmaceutical sector, reliance on imported active pharmaceutical ingredients and new regulatory requirements under the Drugs and Cosmetics Act 2023 created operational hurdles.

Weak enforcement of intellectual property rights further exposed investors to risks.

The report urged the government to strengthen IPR protection and train enforcement agencies like customs and police to improve investor confidence.

The absence of a centralised master OSS, originally intended to integrate services from agencies such as the Bangladesh Export Processing Zone, the Bangladesh Economic Zone Authority and the Hi-Tech Park Authority, has led to data inaccuracies and coordination issues.

Moreover, duplications in registration processes across multiple agencies could be resolved by introducing a unique investor identification system, the paper suggested.

The report also pointed out that BIDA’s registration system included numerous small-scale projects with investments below Tk 15 crore, raising questions about their necessity for BIDA registration when a trade licence could suffice.

It called for streamlining processes and reducing the excessive number of regulatory approvals required, which currently stands at 150 across 23 government agencies.​

 

[Saif]

What is the actual amount of FDI in Bangladesh?

The inflow of foreign direct investment (FDI) in the last fiscal year declined further, which was predictable. After recording a big jump three years back, the country witnessed a decline in FDI for two consecutive years. Macroeconomic instability coupled with political uncertainty discouraged fore

thefinancialexpress.com.bd

What is the actual amount of FDI in Bangladesh?
Asjadul Kibria
Published :
Dec 08, 2024 00:42
Updated :
Dec 08, 2024 00:42

The inflow of foreign direct investment (FDI) in the last fiscal year declined further, which was predictable. After recording a big jump three years back, the country witnessed a decline in FDI for two consecutive years. Macroeconomic instability coupled with political uncertainty discouraged foreign investors from injecting fresh capital. Existing multinational entities (MNEs) also repatriated more instead of reinvesting. Thus, FDI in FY24 declined by 8.80 per cent, after a fall of 6.50 per cent in FY23.

The latest statistics on FDI, released by Bangladesh Bank last week, also gave rise to a few queries about the overall FDI situation in the country. The most important question is whether the statistics provided by the central bank regarding FDI represent the actual scenario. The half-yearly report titled 'Foreign Direct Investment and External Debt January-June, 2024', prepared and published by the statistics department of Bangladesh Bank, showed that the country received US$1.47 billion as net FDI in FY24 which was $1.61 billion in FY23. A year back, the January-June 2023 version of the report, however, showed that the net inflow of FDI in FY23 stood at $3.25 billion.

Therefore, it is crucial to seek clarification when comparing the latest reports on FDI with the previous versions. The latest report presents a significantly different picture, with FDI data revised downward. The central bank publication simply stated: "Data has been revised as per BPM6 Guideline from 2019 and onwards." However, this explanation lacks the necessary depth and transparency, leaving room for misinterpretation. The report mentioned that the Bangladesh Bank has been conducting an enterprise survey since 1995 to collect detailed information on FDI in the country, and FDI data are compiled and published on a quarterly basis on the central bank's website. But more transparency is needed in this process.

Application of the guidelines and methods of BPM6 led to revising the FDI data downward significantly. An explanatory note should be there to avoid misunderstanding and misinterpreting the data. By not doing so, the central bank has continued the old practice of data concealment as was the case during the previous regime.

The Sixth Edition of the Balance of Payments and International Investment Position Manual (BPM6) was introduced in 2009 by the International Monetary Fund (IMF). The international guideline is designed to calculate and compile the balance of payments and foreign investment statistics. Bangladesh Bank has started to follow the BPM6 since 2013 to calculate and prepare the country's balance of payments gradually. In this process, the statistics of FDI are also being estimated in line with the BPM6, which is also reflected in the BoP table.

For instance, in FY14, net FDI was recorded at $1.40 billion in the BoP table, in line with the previous method or BPM5. After revision as per BPM6, it reduced to $1.08 billion. Since then, the FDI figures in BoP have been estimated in line with BPM6. At the same time, the half-yearly report of the FDI continued to provide the statistics based on the enterprise survey without adjusting it with the BoP data. Thus, a significant discrepancy between the BoP data and survey data continued. As the figures generated through survey data were higher than BoP data, the government used to demonstrate the survey data on FDI as the country's success story. In this way, manipulation with a key economic indicator provided a distorted picture of the economy to the rest of the world.

The same also happened in terms of foreign exchange reserves, which are a key component of the BoP. Despite starting the use of BPM6 in FY13, central bank fabricated the forex reserve data to inflate the amount. Intervention from IMF finally compelled Bangladesh Bank to release both the gross and net reserve as the latter matches the BPM6 guideline.

Interestingly, the gross inflows of FDI are also reported in the BoP table since FY15. The estimation of gross FDI also started to appear simultaneously in the survey-based half-yearly report. Gross inflows are the total inward direct investment made by non-resident investors in the country. Net inflows are derived by deducting disinvestment from gross inflows. Disinvestment includes capital repatriation, reverse investments, loans given to parent firms and repayments of intra-company loans to parent firms.

However, the latest report did not provide the gross inflows of FDI or the disinvestment figure, which were included in the previous report. This omission in the latest report makes it less comprehensive and may leave the audience feeling that their need for a complete picture of the FDI situation is not being fully considered. Only the figures on gross outflows of FDI and related disinvestments are there, which is not enough for a comprehensive understanding of the FDI situation.

Once again, the downward revision of FDI data in the report after seven years raises the question of data quality. The potential for data manipulation to inflate national incomes during the ousted Hasina regime has already distorted the overall economic development statistics. This manipulation not only distorts the economic reality within the country but also affects the country's economic reputation on the global stage, making it a matter of concern and vigilance for all stakeholders.

The White Paper on the state of the Bangladesh economy, prepared by a group of experts assigned by the interim government, said: ".....the data ecosystem is highly foggy and toxic for the gullible. Just as global warming is the result of human actions, so are the fogs and toxicity in Bangladesh's data results of errors of omission arising from data collection and computation methods and errors of commission by the ruling elites to fit political purposes." The White Paper also pointed out that the balance of payment data, considered relatively free from systematic bias, entered the flux zone with a story changing revision of export data. "Foreign exchange reserve reporting became controversial with the publication of discrepancies in an IMF report in 2020," it added. Now, the adjustment of the survey data on FDI with the BoP data, which was overdue, needs some clarification for the sake to credibility and transparency of FDI and relevant data.​

 

[Saif]

Warnings of recession in Bangladesh

The interim government's Planning Advisor issued a warning of a possible recession in Bangladesh. He singled out the lack of private investment as the major factor that would be contributing to the impending recession (FE, November 26). However, just two weeks before the Advisor's warning on Novemb

thefinancialexpress.com.bd

Warnings of recession in Bangladesh
Muhammad Mahmood
Published :
Dec 08, 2024 00:30
Updated :
Dec 08, 2024 00:30

A bank teller is counting notes at a branch of bank in Dhaka —FE file photo

The interim government's Planning Advisor issued a warning of a possible recession in Bangladesh. He singled out the lack of private investment as the major factor that would be contributing to the impending recession (FE, November 26). However, just two weeks before the Advisor's warning on November 11, the Governor of Bangladesh Bank assured the country that even if economic growth slowed down, there was no threat of recession in the country.

So, the signals for the recession in Bangladesh look mixed. However, since the Advisor gave his opinion at the end of the Executive Committee of the National Economic Council (ECNEC) meeting held on November 25 chaired by the Chief Advisor, it can be considered as the informed view of the government.

He said that if the current situation continued without any new private investment and almost stagnant public sector, development expenditure would result in a recession. He further added that the private sector was not showing any interest in investment and the interest rate had gone up. He also said that economic stagnation in the country was due to inflation and price hikes of essentials.

Numerous economic theories attempt to explain why and how an economy goes into recession. These theories can be broadly categorised as economic, financial, psychological, or a combination of these factors. Economic output, employment, and consumer spending drop in a recession. Interest rates are also likely to decline as central banks cut rates to support the economy and as a result budget deficits go up.

While there is no official definition of a recession, most analysts use the technical definition of two consecutive quarters of decline in a country's real GDP. A recession can also be defined as a sustained period of weak or negative growth in real GDP that is accompanied by a significant rise in the unemployment rate. But for Bangladesh a simpler definition can be applied where a recession is a significant, pervasive, and persistent decline in economic activity.

The Bangladesh economy is currently slowing down. Early in November, the World Bank slashed its growth forecast for Bangladesh by 1.7 percentage points to 4 per cent for the fiscal 2024-25. Recently, Moody's downgraded country's outlook from stable to negative and downgraded the credit rating from B1 to B2 citing the reason that "the negative outlook reflects downside risks to Bangladesh's growth outlook". Overall, currently there is a pessimistic outlook for growth in the country.

Rising inflation can create business and investor uncertainty. Rising inflation can also place upward pressure on interest rates and downward pressure on some asset prices. Inflation not only reduces the level of business investment, but also the efficiency with which productive factors are used.

Also, jacking up interest rates by Bangladesh Bank to fight inflation has become less effective, as reflected in resurging inflation in the country, nor has it helped stabilise the BDT. This is simply because exchange rates impact inflation through their effect on tradable prices.

Let us only focus on the two main determinants of investment-- interest rates and expected returns. Higher interest rates make borrowing more expensive and potentially reduce investment. A change in real interest rates, whether increase or decrease, will directly affect investment. The real rate of return is the nominal return less the inflation rate. The real rate of return, therefore, adjusts profit for the effects of inflation. It is a more accurate measure of investment performance than the nominal rate of return.

Industrial output growth has slowed down in Bangladesh due to stagnant private investment, import restrictions on inputs and higher energy costs. Foreign exchange reserve has declined, further compounding the problem to a point where the country is struggling to pay for fuel and imports. Bangladesh also imposed import restrictions to save foreign exchange.

Bangladesh is not only running a deficit on the current account but in the financial account as well in its balance of payments. If the financial account becomes negative, that creates further pressures on foreign exchange reserve. Consequently, over the past two years the taka lost about 40 per cent of its value against the U.S. dollar. For foreign investors, this exchange rate volatility causes currency risk and creates concerns about the overall economic environment.

Over the last decade or so, the private investment/GDP ratio remained at around 20 per cent. The industrial sector experienced a decline of 3.7 per cent in output growth in 2023-24. The picture is not very different in the services sector. Together these two sectors account for 87 per cent of GDP. In fact, the investment/GDP ratio has been on a declining trend since 2019.

Bangladesh's foreign direct investment (FDI) was on a downward trend for some time. Bangladesh FDI for 2023 was US$1.39 billion, a 15.28 per cent decline from 2022 and FDI for 2022 was US$1.63 billion, a 5.16 per cent decline from 2021. Overall, FDI remains at a very low level at around 2 per cent of GDP.

According to the US Department of State's "2024 Investment Climate Statements: Bangladesh, "corruption remains a serious impediment to investment and economic growth…Corruption is common in public procurement, tax, and customs collection, and among regulatory authorities. Off-the-record payments by firms reduces Bangladesh's GDP by two to three per cent, according to some estimates". The Statement further adds that foreign investors report that Bangladesh's weak and slow legal system, which is widely believed to be corrupt, is an obstacle to investment.

According to a survey conducted by to the Transparency International Bangladesh (TIB), judicial services ranked as the 4th highest corrupt government organ in the country. Between 2009 and April 2024, an estimated TK 1.46 trillion were paid in bribe to access services provided by the government (FE, December 4). Not surprisingly, the survey period coincided with the repressive and criminally syndicated regime of Sheikh Hasina.

According to the Financial Express (November 27) chief executive officers (CEOs) of multinational corporations operating in Bangladesh met the Chief Advisor and asked him to undertake a series of measures to improve the 'ease of doing business' and to make the Bangladesh Investment Development Authority (BIDA) one stop service centre for them. The BIDA is the main authority that promotes and supervises private investment in the country. They also said that improved credit rating was also needed to encourage FDI flows into the country. For that to achieve, a stable and predictable economic environment is needed.

In view of the Planning Advisor signalling the likelihood of a recession, all investors, both domestic and foreign, in Bangladesh also factor in the vulnerabilities associated with a recession such as sustained profit margin compression, credit market stress, energy and financial market shocks. Also, a deeply crisis ridden banking sector, where the central bank has recently injected Tk 225 billion to six cash-strapped banks to meet depositors claims and the ratio of non-performing loan (NPL) is likely to hit 25 per cent in the coming days, notwithstanding additional uncertainties related to the political backdrop adding further to investors woes. The interim government, therefore, through its actions need to reassure investors and creditors that it can guarantee both the political and economic stability conducive to stimulate economic growth.

Bangladesh's private consumption accounted for 66.8 per cent of its nominal GDP in June 2024, compared with a ratio of 68.6 per cent in the previous year. On average across countries, private consumption is the component of GDP that accounts for the largest proportion of the overall changes to GDP. So, weaker private consumption will slow down the economy further. This is also relevant because private consumption is a prime indicator of the economic well-being of households.

But the real interest rate (bank lending rate minus inflation) has been on the decline since 2019 and stood at 0.629 per cent in 2023 against an average of 4.96 per cent between 1976 and 2023. The real interest rate in Bangladesh at 0.63 per cent is very low relative to the world average of 4.25 per cent, based on data from 81 countries. So, this can not be a major factor impeding private investment.

Over the past two years, the taka lost about 40 per cent of its value against the U.S. dollar. Since the end of September, the dollar has again started to appreciate devaluing currencies around the world, including BDT. For foreign investors this exchange rate volatility causes currency risk and creates concerns about the overall economic environment.

Lack of domestic private investments in Bangladesh can be attributed to a variety of factors ranging across infrastructure deficiencies, lack of finance, corruption, macroeconomic imbalances, ineffective enforcement of law, to mention a few. The inflow of foreign direct investment also remains low, mainly due to the poor regulatory framework and business environment as well as widespread corruption and red tape.

So, the slowdown in economic activity is not only for lack of investment but also for a host of other reasons. The state alone cannot stimulate the economy or pick up the slacks of the private sector to maintain the growth momentum. In fact, in view of the economic challenges resulting from the repressive and highly corrupt Hasina's 15-year rule, the present period does not hold out much hope of economic growth.

What is needed now is an industrial policy to build better Bangladesh with a sharp break with the economic policy consensus of the last five decades or so. This will require delinking industrial policy from high levels of bureaucratic and political controls carried out under the pretence of economic nationalism which has only resulted in creating an almost closed economy and helped a deeply corrupt bureaucracy and equally corrupt politicians to benefit from it.

A recently published draft report on the State of Bangladesh Economy revealed the extent of corruption involved in the public sector development expenditures under the Annual Development Programme (ADP) alone over the last 15 years. The report indicated that about 40 per cent of the allocated funds were embezzled by the politicians and public servants. What is more disturbing, US$16 billion on average have been transferred overseas annually during the past 15-year period (FE, December 1&2).

Therefore, industrial policy must also set the transparent parameters on the state's role in the economic realm. Such the necessary fine tuning of industrial policy will not only help woo private investment including FDI but will also help the country accelerate the economic recovery and strengthen capacity to withstand future shocks, enabling the country to achieve sustainable economic growth.​

 

[Saif]

Bangladesh economy might have expanded in Nov

Bangladesh’s Purchasing Managers’ Index (PMI) increased to 62.2 in November, a 6.5 percentage point climb from October, according to an unofficial estimate, indicating accelerated economic expansion driven by agriculture, manufacturing and services sectors.

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Bangladesh economy might have expanded in Nov

Bangladesh's Purchasing Managers' Index (PMI) increased to 62.2 in November, a 6.5 percentage point climb from October, according to an unofficial estimate, indicating accelerated economic expansion driven by agriculture, manufacturing and services sectors.

However, the construction sector saw a setback, reverting to contraction.

The PMI, released by the Metropolitan Chamber of Commerce and Industry (MCCI) and Policy Exchange Bangladesh (PEB), is a tool designed to offer timely insights into the nation's economic health, according to the MCCI.

Developed with support from the UK Government and technical expertise from the Singapore Institute of Purchasing & Materials Management (SIPMM), it provides a critical barometer for businesses, investors and policymakers.

In the latest report published on December 7, agriculture showed robust growth, marking a second consecutive month of expansion with improved indexes for new business and activity.

Employment in the also sector contracted at a slower pace, while order backlogs contracted faster. Manufacturing extended its expansion streak to three months, with gains in new orders, exports, factory output, and input purchases.

Notably, the sector posted first-time growth in employment, imports, and supplier deliveries. Order backlogs contracted at a reduced rate. The construction sector, which had marginally expanded in October, faced a downturn. Input costs and order backlogs contracted, though new business, activity and employment showed slight improvements.

The services sector continued its recovery, expanding for a second month with stronger growth in new business and order backlogs. Employment in the sector returned to positive territory, while input costs rose more slowly.

The latest PMI readings indicate a gradual expansion of the Bangladesh economy for the second month after previously posting 3 months of contractions.

Despite the positive outlook, the economy continues to face challenges arising from various political process-related uncertainties and disruptions from industrial and other protests.​

 

[Saif]

Salehuddin urges industrialists to invest in education, research

Finance adviser Salehuddin Ahmed on Sunday urged industrialists to invest in education and research to bridge the gap in skilled manpower and knowledge in the industrial sector...

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Salehuddin urges industrialists to invest in education, research
Bangladesh Sangbad Sangstha . Dhaka 08 December, 2024, 22:58

Salehuddin Ahmed | BSS photo

Finance adviser Salehuddin Ahmed on Sunday urged industrialists to invest in education and research to bridge the gap in skilled manpower and knowledge in the industrial sector.

The adviser made these remarks as chief guest at the celebration ceremony of the Graduate Diploma in Leather, Leather Goods and Footwear Management programme of East West University held at EWU campus in the city, said a press release.

Salehuddin Ahmed emphasised that successful figures like Bill Gates and Elon Musk did not achieve their innovations solely by themselves; their success was built on long- term investments in research.

He highlighted the irony that while business leaders in Bangladesh often complain about the lack of skilled manpower, they did not invest in educational and research institutions.

The event was presided over by chief adviser of EWU and former governor of the Bangladesh Bank Mohammed Farashuddin. Other distinguished speakers included resident representative of the Asian Development Bank in Bangladesh Hoe Yun Jeong, vice-chancellor of EWU Shams Rahman, senior vice-president of the Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh Mohammed Nazmul Hassan, additional secretary of the Finance Division Mohammed Walid Hossain and professor of the Department of Business Administration of EWU and programme director of the Graduate Diploma in Leather, Leathergoods and Footwear Management Programme Tanbir Ahmed Chowdhury.

The ceremony was attended by EWU diploma graduates, faculty members, Officers from different sections, officials from the Ministry of Finance, and representatives from the Asian Development Bank, among others.​

 

[Saif]

NBR to cut tax exemptions once economy improves: chairman

The government will rationalise tax exemptions once the country’s economic situation improves to some extent, according to National Board of Revenue (NBR) Chairman Md Abdur Rahman Khan.

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NBR to cut tax exemptions once economy improves: chairman

The government will rationalise tax exemptions once the country's economic situation improves to some extent, according to National Board of Revenue (NBR) Chairman Md Abdur Rahman Khan.

"To boost revenue, we must come out of the culture of tax exemptions. Our development partners have asked us to discontinue this practice for our benefit," he said, describing the practice as discriminatory.

Khan made these remarks while responding to queries from journalists at the NBR headquarters in Agargaon yesterday.

The revenue authority is considering bold measures regarding tax exemptions, especially as the International Monetary Fund (IMF) has been persistently urging the government to cut them in a bid to increase the country's tax-to-gross domestic product ratio, which is among the lowest in the world.

"We have no alternative but to cut exemptions," he said.

"We will do it timely. We have already started. It's not like we are sitting idle. Except for essential commodities, we will take steps immediately where we have the scope."

The interim government has introduced various tax exemptions on the import of essential commodities, including rice, oil, eggs, and onions in recent months. The NBR chairman attributed these exemptions to the ongoing "economic crisis".

He also hinted at the imminent withdrawal of some tax exemption facilities.

"We have issued some statutory regulatory orders to cancel existing exemptions. Some more will be issued later," he said.

However, Khan assured that no forceful measures would be taken.

"We will move only after discussion with traders," he added.

Despite the revenue board allowing significant exemptions at the import stage, the prices of essential commodities have not yet reduced to expected levels, he said.

Khan also said that the NBR was set to observe the National VAT Day today and "VAT Week" from December 10 to 15.​

 

[Saif]

No overnight cure for ailing financial sector

There is no overnight cure for the deep-rooted challenges facing the country’s banking sector, Abdul Awal Mintoo, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said yesterday.

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No overnight cure for ailing financial sector
Former FBCCI president Abdul Awal Mintoo says

There is no overnight cure for the deep-rooted challenges facing the country's banking sector, Abdul Awal Mintoo, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said yesterday.

He also said the initiatives that the Bangladesh Bank has taken so far are not enough to bring down non-performing loans.

He made the remarks while speaking on the current business and investment environment and the way forward at the Economic Reporters' Forum (ERF) office in Dhaka. The ERF organised the conversation.

Minto added that printing money to lend to cash-strapped banks is a misstep because it can cause inflationary pressures -- a thorn in Bangladesh's side for over two years -- in the domestic markets to intensify.

The economic data requires a lot of corrections, including in exports and imports, as the real data was not published during the last government's regime

The investment environment climate is attractive enough to lure in foreign direct investment, he added.

More than 96 percent of investment comes from people's savings, but they can hardly save due to high inflation, he said.

In recent times, well-dressed people are also standing in queues in front of the Trading Corporation of Bangladesh's Open Market Sales programme, which sells essentials at subsidised prices through trucks.

The former FBCCI president also said a warm relationship with India is needed for the sake of the country's interests.

Minto also said Bangladesh should not graduate from the group of Least Developed Countries (LDCs) and get the status of a developing nation based on false economic data.

A recent white paper on the state of the economy estimated that Bangladesh's gross domestic product had been overstated by 3.5 percentage points on average between FY13 and FY19.

"The economic data requires a lot of corrections, including in exports and imports, as the real data was not published during the last government's regime," he said.

Replying to queries, Mintoo said the corporate culture in the country has not improved yet as most big corporations are still very much family businesses.

He said the country's failure to produce an adequate number of qualified personnel to run such big corporations efficiently was one of the reasons for that.

However, this can cause serious problems for businesses, as exemplified by Beximco Group, which has been in hot water since the arrest of its vice-chairman Salman F Rahman after the political changeover.

Salman also served as the private industry affairs adviser to deposed Prime Minister Sheikh Hasina.

Regarding corruption under the past government, he said a section of people considered bribes to be an investment. It was not a political party but a section of people that ran the country without holding acceptable elections, Mintoo said.

He added that an acceptable election is needed to improve the business and investment environment.

He said a special environment must be prepared to attract investment, especially to capitalise on investments that are being shifted away from China.

Other countries are attracting that capital because of a good investment environment, he added.

He added that foreign direct investment has been slowing because foreign investors think Bangladesh is a risky country for parking funds.

Significant discrimination is being noticed in the country's education and health sectors and an elected government can remove such discrimination, he opined.

Mintoo expects the interim government will announce a roadmap to elections soon as all reform reports will be submitted to the government by the end of this month.

The way the government has been freezing the bank accounts of businessmen is not right. Such steps will affect business, he said.​

 

[Saif]

Finance adviser hints at end to tax break

Finance adviser Salehuddin Ahmed on Tuesday said that the tax exception culture enjoyed by industries over the years was due largely to low domestic revenue generation...

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Finance adviser hints at end to tax break
Staff Correspondent 10 December, 2024, 22:46

National Board of Revenue chairman Md Abdur Rahman Khan speaks at a seminar on the occasion of ‘VAT Day and VAT Week 2024’ organised by the National Board of Revenue at its head office at Agargaon in the capital Dhaka on Tuesday. Finance adviser Salehuddin Ahmed, Finance Division secretary Md Khairuzzaman Mozumder and Federation of Bangladesh Chambers of Commerce and Industry administrator Md Hafizur Rahman also spoke on the occasion. | New Age photo

Finance adviser Salehuddin Ahmed on Tuesday said that the tax exception culture enjoyed by industries over the years was due largely to low domestic revenue generation.

‘Days are numbered for enjoying the tax break,’ said the finance adviser at a seminar on the occasion of ‘VAT Day and VAT Week 2024’ organised by the National Board of Revenue at its head office at Agargaon in the capital Dhaka.

The finance adviser said that the local industries were needed to be got rid of tax exemption facility to face the challenges the country’s graduation from the least developed countries’ bloc in 2026 would bring.

Many local export-oriented industries which are now enjoying duty preferences in developed and developing countries may lose the benefit, he said.

The finance adviser was also critical about the tax evasion for which the country’s tax-GDP ratio has been ridiculed as one of the lowest in the world.

He suggested that tax officials should be friendly to taxpayers.

He called upon all to pay taxes so that the government is able to increase allocation to health and education sectors.

A World Bank report said the county’s income from value-added tax in 2018-19 could have been at least three times higher than the collection of Tk 85,000 crore had the government implemented the VAT law properly.

Presided over by NBR chairman Md Abdur Rahman Khan, Finance Division secretary Md Khairuzzaman Mozumder and Federation of Bangladesh Chambers of Commerce and Industry administrator Md Hafizur Rahman spoke at the seminar.

The finance secretary said the development partners often raised the issue of low tax-GDP ratio.

The revenue board should conduct strong efforts to augment revenue mobilisation, he said.​